MONACO: An Introduction

An Introduction to Monaco  

The Principality of Monaco is an attractive small state adjoining the French Riviera. Monaco is headed by the Grimaldi family, a 700-year-old dynasty, currently represented by His Serene Highness Prince Albert II, recognised internationally for his commitment to sustainable development. The Principality joined the Council of Europe in 2004 but is neither a member of the European Union (EU) nor of the European Economic Area (EEA).

The Principality has attracted a cosmopolitan population with nearly 40,000 inhabitants of 120 different nationalities including around 9,500 Monegasque, 10,000 French, 5,000 Italian and 2,000 British. More than 53,000 people are employed in the Monaco private sector and commute every day from their domicile outside the Principality, mostly in neighbouring French  cities.

Monaco’s 2021 GDP was EUR7.27 billion. With the balance of French VAT which represents a significant source of income, three sectors create nearly half of the wealth produced in the Principality: (i) scientific and technical activities, administrative and support services (21.2%); (ii) financial and insurance activities (16.1%); and (iii) wholesale trade (10%). The annual report published on 10 November 2022 by Monaco Statistic (IMSEE) revealed that the Monaco economy regained its vitality and is returning to a path of growth after the COVID-19 crisis.

The year 2022 was shaped by legislative challenges and continuous construction projects.

Major developments and construction sites have been launched or are in their completion phase. With an average cost per square meter exceeding EUR50,000, Monaco is one of the most expensive countries in the world for real estate.

Monaco continues to roll out its programme of digitalisation and management of big data, referred to as “Extended Monaco”. The main purpose of this programme is to enhance Monaco living standards and public service (eg, 100% 5G coverage, sovereign cloud, high performance and connected mobility, innovative medicine and educational coding programmes, and cleantechs) and also to increase the attractiveness of Monaco as a business centre.

Legal and Regulatory Background 

As a sovereign state, the Principality of Monaco has its own legal system including laws, regulations, court systems and regulators.

Although the Principality is not a member of the EU:

- it shares a customs union with France and consequently is part of the EU customs territory;

- it belongs to the Eurozone; and

- it determines and collects VAT on the same basis and at the same rates as in France (general rate of 20%).

The Principality of Monaco has been engaged in negotiations with the EU aimed at reaching a balanced Association Agreement allowing Monaco to participate in the EU’s internal market while ensuring respect of Monaco’s principles and interests.

Business activities subject to prior authorisation from Monaco authorities

As a general rule, any business activity carried out in Monaco by non-Monegasque persons is subject to prior authorisation from the Monaco authorities. Certain regulated activities such as banking, insurance and financial services are subject to specific requirements, notably with regard to the type of legal entity, minimum capital, management qualifications, infrastructure, staff, etc.

Banking and financial activities 

The financial sector includes 35 banking institutions and 58 asset management companies employing a workforce of about 4,000 employees with total assets under management of nearly EUR120 billion.

We see the consolidation trend for banks and asset management companies continuing, following years of banking M&A transactions, on which our firm has advised.

The Monaco banking and financial regulatory framework is complex. Monaco not being a member of the EEA, European passporting principles do not apply for most banking and financial activities. However, pursuant to current treaties in force with the EU, a number of EU regulations and directives (eg, the Capital Requirements Regulation/Capital Requirements Directive IV, the Payment Services Directive and the European Market Infrastructure Regulation) also apply in Monaco.

Pursuant to a Treaty dated 14 April 1945 between Monaco and France (as modified subsequently), provisions in French legislation concerning the regulation and organisation of banks are directly applicable to Monaco. Authorisations and banking licences are delivered and regulated by the French Autorité de Contrôle Prudentiel et de Résolution (ACPR) with its Monaco counterpart the Direction du Budget et du Trésor, a Department of the Monaco Ministry of State.

Portfolio/investment management services can only be undertaken in Monaco, “habitually or professionally”, by entities duly authorised and regulated by the Monaco Commission de Contrôle des Activités Financières (CCAF).

Monaco financial activities laws were significantly modified in 2022 by two new statutes dated 23 December 2021 and 27 July 2022. These laws, highly debated between professionals of the Monaco market, have resulted in the reinforcement of legal obligations for Monaco-licensed entities and in a general prohibition of solicitation of Monaco investors by non-licensed entities. Despite the introductions of legal exceptions to such general prohibition, solicitation of Monaco investors by non-licensed entities in Monaco is still very sensitive and careful risk assessment is required to avoid potential criminal sanctions. The Monaco market is still expecting further clarifications in implementing texts.

Privacy and protection of personal data

The Principality has ratified the Council of Europe Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data and its additional protocol in 2008. Processing of personal data in Monaco, including data transfer abroad, is either subject to notification or to prior authorisation by the Monaco Commission de Contrôle des Informations Nominatives (CCIN). The Principality is currently assessing its domestic data protection regime to reach the standard of protection granted under the EU GDPR.

The Monaco market has long been expecting the entry into force of a “Monaco GDPR”. This data protection bill was presented to the Monaco Parliament (Conseil National) at the end of December 2021. Its main objective is to harmonise Monaco data protection laws with the EU General Data Protection Regulation in order to place Monaco as a jurisdiction with an “adequate level of protection” for privacy purposes. The legislative process has been at a standstill since March 2022, but the Principality is hoping to see an outcome in 2023.

Anti-money laundering (AML) and anti-corruption laws 

Monaco has one of the strictest AML regimes in the world with strong administrative and criminal sanctions. The Principality is a member of MONEYVAL which is the permanent monitoring AML body of the Council of Europe. Monaco implemented the EU 5th AML Directive on 23 December 2020.

Monaco has also enacted anti-bribery legislation dealing with gifts, presents and other types of commissions received in return for acts or omissions of recipients, such as civil servants, international or foreign public officials, employees in the private sector and magistrates or jurors, in the course of their duty or employment. Such rules are currently being reassessed in respect of magistrates in accordance with the recommendations of the Council of Europe’s Group of States against Corruption.

The Moneyval AML evaluation process for Monaco was finalised at the end of 2022. The evaluation report published early 2023 highlights key vulnerabilities in the Monaco frameworks for AML and combatting the financing of terrorism (CFT). Significant improvements are expected from financial institutions and non-financial businesses prior the end of a one-year scrutiny period in order to avoid falling under the “grey list”.

E-commerce, e-signatures and digital projects

Monaco is connected to the Europe-India-Gateway and was one of the first countries in the world to be fully 5G covered with high-quality internet connection from computers, mobile phones as well as all other connected objects (eg, connected cars).

In 2020, a new step was taken with the adoption by the Monaco Parliament of a token offering regulation. The law and its implementing Sovereign Ordinances introduce a legal framework for token offering and a new funding system for Monaco companies. This regulatory framework aims to confirm the position of Monaco as an attractive financial centre while protecting the interests of investors and the reputation of the Principality.

Since August 2011 and its first law dedicated to digital activities, the Principality has constantly updated its legal rules to support e-commerce, e-signatures and other innovative projects such as blockchain.

As part of the Extended Monaco programme, a new step in the digital transformation of the Principality was made in 2022 with the introduction of an online service for obtaining registration extracts from the Monaco Trade and Industry Registry.

Other Monaco specificities 

Monaco law has a number of specificities in many areas of business law – including corporate, employment and foreign investment – that investors must be aware of when considering investing in a Monaco company or business.

For instance, sole shareholder companies are not allowed in Monaco, directors are required to hold company shares, share and business sales are subject to registration requirements and fees, and companies’ objects clauses are construed strictly regardless of the type of activity. These restrictions are currently being discussed with a view to simplifying and adding flexibility in the setting-up of businesses in Monaco.

As for HR/employment law, a specific order of priorities must be followed in the hiring and firing of staff employed in Monaco.

Foreign investment rules in Monaco have recently changed as a result of a modification of French law which may impact the regulatory filing practice for investments in certain sensitive industries.

These Monaco specificities require specific planning as conditions precedent and timing for corporate and M&A projects involving Monaco companies.